AAPL on Goldman’s Conviction Buy List and Apple’s Success
According to a Reuters article, Goldman, Sachs & Co. has added Apple Computer (ticker AAPL) to its Conviction Buy List. According to GS Global Investment Research this means that Apple’s addition “[represents] investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.” It may be a good time to purchase some shares of AAPL prior to WWDC in early June, where a new 3G iPhone and updated iPhone software are rumored to be announced. They are increasing distribution to foreign countries as well as chipping away at Research in Motions (ticker RIMM) market share in the smart phone market. Apple has captured 28% of the US smart phone market in such a short amount of time; newer devices, possible subsided prices, and developer applications will only propel the devices adoption into the masses. The question I ask is why is Apple so successful?
Including Apple to a list of successful companies is a given. The stock is up over 3,500% over the past decade and over a 1000% from 2001. For may of their products they weren’t the first to come to market; they were the best. This can be seen in their lines of iMacs to iPods to iPhones. Today’s society has benchmarked them as hip, creative, and energetic. Purchasing a competing product today is considered a social faux pas. Apple’s marketing is genius; they make the best products and allow for competing brands to “attempt” to design comparable devices. The smart consumers choice is simple, pick the product that the most people will associate me with “being cool”.
To expand on Apple’s strategy, they produce the best products. Comparing Starbucks to Apple, they both create new products/services in a seemingly congested market. The difference is that Starbucks’ competitors create knockoff products that are just as popular whereas Apple’s competitor can produce a technically similar product that can’t sell. Take Microsoft’s Zune where it has similar design, similar features, similar price and yet people don’t buy it. Gamestop is fazing out the device which for which ” Microsoft has sold only 2 million Zune’s since it launched the device in November, 2006. Apple, in contrast, sold 10.6 million iPods last quarter.” The reasoning is simple, to be cool you need to buy an Apple product.
Apple has an addiction to finding what is wrong with current technology and media and turning it into something that people will love and covet. They are reshaping the cellular industry and are on the cusp of changing the way people and technology interact. Despite the lack of vigor into Apple’s home entertainment, they will be the leading provider of legal digital content being delivered to the home in a short period of time. Not that they haven’t captured over 70% of legal digital music sales and surpassing Walmart as the leader in music sales, its that the market isn’t ready for such thorough integration of media into the living room. Apple TV will bridge the gap for now, but I would not be surprised that Apple has other devices up their sleeves to meet the changing market in a few years.
Apple prides itself on cutting edge innovation and breathtaking design. Their success is rooted in the fact that they look for problems with today’s technology then build tomorrow’s solution.
References:
http://www.reuters.com/article/companyNews/idUKBNG29300420080523?symbol=AAPL.O
http://www2.goldmansachs.com/research/rating.html
http://www.macdailynews.com/index.php/weblog/comments/15363/
http://arstechnica.com/journals/apple.ars/2008/02/05/iphone-owns-28-percent-of-us-smartphone-market
http://www.washingtonpost.com/wp-dyn/content/article/2008/05/23/AR2008052301323.html
